Observations focused on the problems of an underdeveloped country, Venezuela, with some serendipity about the world (orchids, techs, science, investments, politics) at large. A famous Venezuelan, Juan Pablo Perez Alfonzo, referred to oil as the devil's excrement. For countries, easy wealth appears indeed to be the sure path to failure. Venezuela might be a clear example of that.

Archive for May 15th, 2011

In another chapter of the characteristic “Yo no fui” (Who me?) attitude, PDVSA’s CFO has told the National Assembly in his report on the matter that”it is unfounded and irresponsible to link PDVSA’s Board of Director with the investments in the funds”.

Funny, Mr Carruyo, who is a member of the Board according to the PDVSA website (see above, it says Junta Directiva in the red square and then in the bigger red square is Mr. Carruyo himself) and according to this letter I published a while back, happens to be at the same time: “President of the Board of retired people of PDVSA and its affiliates”, he claims the Board (which apparently includes himself) has not made any decisions with respect to the investment decisions.

Say what? What is he President of?

Better yet, as President of the Board of the Pension Fund he had nothing to do with investment decisions, overseeing what was done and the like? Has he ever heard the words “administrative responsibility”?

But even worse, how could the same Board of PDVSA allow Mr. Carruyo to investigate himself and write the report?

And he says very funny things, such as “Mr. Illaramendi was never an employee of PDVSA, his professional link, was via outsourcing through a foreign company”

Which is true, Mr. Illaramendi made so much money at Credit Suisse, that he would have never taken a salaried job at PDVSA, he would have had to make more money than Carruyo and Ramirez together just to make the minimum salary of a Managing Director at CS. Thus, the magic “solution”: Hire him as a sweet deal consultant and to make it a little obscure, have him do it via a company owned by him.

But the most irresponsible and hilarious part is that Carruyo then blames what happen on “the capitalistic nature” of the fund, subject to the “ups and downs” of the markets.

Sorry Eudomauro, anyone that placed money with Madoff, Stanford and Illaramendi should not be allowed to get even close to one Bolivar or one dollar of money to be managed and should actually be punished for the loss. But this case is even more fishy, because Illaramendi was a Venezuelan friend of the “house”, hired as a high flying consultant, a job that he left precisely to start managing money, an area in which he had no experience. Stinks to high heaven.

In fact, the same report says how bad things are (or were), as the funds had a total of US$ 2.7 billion, of which only US$ 580 million was being managed abroad and of these US$ 453 million were with Illaramendi (The SEC says it is more)

So, 21.5% of the funds were managed abroad, but of this percentage, 78% was managed by an unknown Venezuelan investment manager, without a track record, unregistered to do the job in the US and who at some point had a sweet consulting deal with PDVSA?

Cuentame una de vaqueros Eudomaro. (Tell me a story about cowboys)

But as if this were not enough, the report says that of the total, 2% is in real state, 15% in local banks (pensioners get paid in local currency), 5% what is managed by others and 61% in PDVSA and Venezuela bonds.

Let’s see 61% of US$ 2.7 billion is 1.65 billion, but Minister Ramirez himself told us in January that PDVSA had sold US$ 1.2 billion of the PDVSA 2017 bond with an 8.5% coupon to the pension funds. So, a full 44.4% is in bonds of the company itself, which is not what portfolio management theory says you should do. (Remember Nortel? Employees not only lost their jobs, but also their pensions as most of the pension fund was invested in stock of the company)

But this is also not kosher, because there is no independent body making decisions. First, it is too large of a fraction in a single bond (The rest may be in others). Second, it makes no sense to invest it in a single bond, with a single maturity. Yes, the pension fund should invest in PDVSA bonds, they do yield 15-16% after all and the people running the company know it better than anyone. But it should be diversified in a basket of PDVSA bonds and they should be actively traded as prices vary. But it should never be such a large fraction and least of all in a single instrument.

Carruyo’s whole argument is that the Board of PDVSA never made any decisions on the matter. But he did. And as such, he should be forced to leave the position (i.e. fired and be made to pay for the mistake and be investigated), because either he knew or he did not know, in both cases, he is guilty of not administering the money correctly and someone else should be placed in charge.

Preferably somebody that knows and I am not offering myself for the job. I would never work for the current PDVSA. I would advise a new PDVSA for free, but that I dont think will never happen.

And someone else should investigate Carruyo. It is called conflict of interest and in this case there is a HUGE one, to say the least.